S&P 500 (SPY) Dives Towards 3500 As Inflation Rate Exceeds Expectations

Key Insights

• S&P 500 found itself under strong pressure in premarket trading as U.S. inflation reports exceeded expectations. 
• Treasury yields moved to new highs, which was bearish for stocks. 
• A move below the 3500 level will open the way to the test of the support at 3490.

S&P 500 Drops 2% In Premarket Trading

S&P 500 futures are testing new lows after the release of inflation reports. The reports indicated that Inflation Rate declined from 8.3% in August to 8.2% in September, compared to analyst consensus of 8.1%.

Core Inflation Rate increased from 6.3% in August to 6.6% in September, while analysts expected that it would grow to 6.5%.

Meanwhile, the Initial Jobless Claims report indicated that 228,000 Americans filed for unemployment benefits in a week, mostly in line with the analyst consensus.

The higher-than expected inflation reports pushed Treasury yields towards yearly highs as traders bet on aggressive rate hikes from the Fed. Currently, the yield of 10-year Treasuries is trying to settle above the psychologically important 4.00% level. In case this attempt is successful, it will gain additional upside momentum and move towards 4.10%, which will be bearish for stocks.

Tech stocks will likely get beaten at the start of today’s trading session. Leading tech stocks like Apple, Microsoft, Alphabet, Amazon, and Tesla are already down by more than 2% in premarket trading.

It remains to be seen whether traders will try to find safe-haven assets in the stock market today. In case the panic grows, the money will go into the U.S. dollar, which is already testing new highs. Strong dollar is bearish for commodities, so commodity-related stocks will likely find themselves under material pressure today.

S&P 500 Is Moving Towards The Support Level At 3490

S&P 500 managed to get below the support at 3525 and is moving towards the next support level, which is located at 3490. In case S&P 500 settles below the support at 3490, it will head towards the next support level at 3465. A move below 3465 will push S&P 500 towards the support at 3435.

On the upside, the previous support level at 3525 will serve as the first resistance level for S&P 500. If S&P 500 climbs back above this level, it will move towards the next resistance at 3560. A successful test of this resistance level will open the way to the test of the resistance at 3585.

For a look at all of today’s economic events, check out our economic calendar.